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Good Afternoon,
Trustees of a fund have just realised that one member has been salary sacrificing their wage into the SMSF, and that member is over the age of 75. This was happening during the 2022 financial year, but are only now completing the financial accounts for that year, which is how the issue has been noticed.
What needs to happen to rectify the situation and what needs to be reported as a contravention?
Thank you in advance.
Faye
]I have a similar situation where a couple both over 75 made a $ 20,0000 contribution on 23 June 2022. The Accountant said they did not realise the SMSF could not accept the contributions until after the 30 day period. The Accountant has stated in writing in an email that the $ 20 k was refunded $ 12000 on the 18 July (<30days) and residue $ 8000 on 27 July 2022 (>30days) The Accountant has reported the $ 20,000 as a loan repayable to the trustees on the Balance Sheet. I ve queried that stating that an SMSF may not borrow and question whether the $ 20000 should have been presented in the appropriate members account. not as an SMSF liaibility. Obviously the amount would then need to be reported to the ATO. If I may rely on the statement by the Accountant with some supporting evidence how should the Financial Statements and Income Tax Return present the $ 20,000 ? If the Acct does not change the Financials must I qualify for the $ 20,000 or just the $ 8,000 not refunded until after 30 days ? Please confirm any qualification and ACR is re Reg 7.04 for the $ 8000 only.
Hi Faye
The audit report section that is relevant is SIS Regulation 7.04 that requires:
"Contributions can only be accepted in accordance with the applicable rules for the year
being audited".
For the year ended 30 June 2022 for those that are 75 years or older a Fund can only accept contributions that are:
"(a) mandated employer contributions; or
(b) downsizer contributions."
Salary sacrifice amounts are not mandated employer contributions so there has been a breach of this section.
Under SIS Regulation 7.04(4) the "fund must return the amount to the entity or person that paid the amount within 30 days of becoming aware that the amount was received in a manner that is inconsistent" with SIS Regulation 7.04.
Further under SIS Regulation 7.04(5):
"If a regulated superannuation fund acts under subregulation (4), the fund is taken not to have contravened the Act or these Regulations in relation to the acceptance of the amount or in relation to the return of the amount to the entity or person that paid the amount of the fund."
To rectify the breach the contributions must be returned within 30 days of the trustees being made aware. If the contributions have been returned within 30 days of being made aware there is no breach of SIS.
I also note that the ATO advises at:
"If your SMSF cannot accept the contribution of a member because of these restrictions, you must return the amount to the member or entity who contributed it.
You must return the contribution within 30 days of becoming aware that you cannot accept it. For an SMSF we consider you're aware that a contribution is in breach of the law when you become aware of the contribution itself. This would generally be on the day you receive the contribution.
We expect you to act with care, skill, diligence, and to:
know which types of contributions breach the super laws
have a process to work out whether a particular contribution breaches the super laws
return non-acceptable contributions within 30 days of receiving them.
The ATO view is that the 30-day requirement obliges funds to return contributions without delay. The trustee remains obliged under SISR subregulation 7.04(4) to return the amount, even if more than 30 days has elapsed since the trustee became aware of the obligation."
Thanks
SMSF AAA